Note to Howard: Sometimes, you get what you asked for

Summary:It's hardly news that Telstra's corporate philosophy has become one of incessant whinging and strongarming since CEO Sol Trujillo rolled into town, but over the past week the company took its rhetoric to another level ...

Let's raise our glasses to Renai LeMay for his long streak of incisive coverage of Australia's telecommunications industry; they have a lot to answer for, and we have all benefited from his tenacity and willingness to ask the right questions. His recent career move leaves this blog in my hands for now, but rest assured I'll do my best to continue the tradition.

And where better to start than Telstra, that love-to-hate-em cornerstone of Australia's telecommunications industry?

It's hardly news that Telstra's corporate philosophy has become one of incessant whinging and strongarming since CEO Sol Trujillo rolled into town, but over the past week the company took its rhetoric to another level with what appears to be a veiled threat to let its bush telecoms infrastructure die a long and painful death (some would say the carrier has been making good on this threat for years, but I digress).

Telstra Countrywide group manager Geoff Booth, the company's point man on all things happening outside the capital cities, was apparently in a tizzy after learning that it appears Telstra's competitors are likely to receive the proceeds of the current AU$600 million in government funding. Such an action, Booth wrote, would "send a very clear message that the government does not place any value on Telstra's long-standing commitment to regional, rural and remote Australia."

Perhaps "commitment" is too strong a word from a company that has a long history of treating its rural customers like second-class citizens. "Shotgun marriage" might be more appropriate, since most of Telstra's investment in the bush has been driven more by government pressure than by commercial imperative. Heck, it was 18 months after Telstra's competitors launched ADSL2+ that the company bothered to counter them -- and ISPs remember all too well Telstra's history of only setting up Internet points of presence in rural areas as soon as a competitor had entered the market.

The reason Telstra wasn't short-listed for this round of funding is, reportedly, that its submission to the Broadband Connect program had no proposals for continuing investment in rural infrastructure -- a critical part of eligibility for funding under the AU$1.1 billion program.

In other words, Telstra's failure to plan for building out its rural network is causing it to threaten not to build out its rural network. I'm sensing a common theme here.

This of course won't sit well with those who feel Telstra has an obligation to provide equal access to all Australians -- but perhaps those who bag Telstra's petulant, whiny and profit-minded management style should stop to think where their anger should really be directed.

To Telstra, I say: good on you.

After all, Telstra is no longer a government do-gooder, but a fully privatised organisation with shareholders to satisfy. Its only fiduciary obligation is to deliver returns to its shareholders, at any cost. Of course Telstra doesn't want to build out city-equivalent infrastructure across the country; the business case for VDSL to the farmhouse is shaky at best (although I would love to hear from someone who can convincingly argue otherwise).

Why would anybody expect this tiger to change its stripes? After all, the real culprit here is the government -- and a decade of poor management that begat an utter disregard for the reality of a fully commercialised Telstra.

The Howard government worked tirelessly for years to push Telstra towards public ownership -- theoretically because it is a natural consequence of deregulation, and realistically because it wanted to maximise the sale price it could get from divesting one of its largest assets.

During this process, it is now clear, the government lost touch with the objectives it set forth by deregulating the market in the first place. By stepping away from separating Telstra's network and retail arms, it created a monster in Telstra -- a competitive, cutthroat, profit-minded Goliath with the will, and the way, to set Australia's telecoms agenda at its own pace.

This could have been managed better in the past, had the government treated Australia's telecommunications infrastructure like the national asset that it is.

Now that Telstra has been sold off, however, the government now lacks the ability to set special rules to manage Telstra's increasingly commercially minded behaviour. Given that Australia's sparse population and vast distances create a business-case challenge unrivalled anywhere else in the
world, these rules were the only reason most rural residents are even able to communicate with anything more complicated than smoke signals.

Gas, water and electricity carriage have also been deregulated and privatised in recent years, but in a way that separates infrastructure from retail operations. Can you imagine AGL threatening to cut off gas supplies to rural NSW or Victoria? It would never happen -- and that's because generation, carriage and retail operations are managed by widely divergent entities. Generation and carriage are tightly managed by the government, which knows the county would collapse without them.

On what basis should telecommunications be any different? Functional separation should have been put into place years ago, but that would have diluted Telstra's value to shareholders and forced the government to put What Is Right ahead of What Is Profitable. Sure, the government recently relented, but that's hardly going to change things now; Telstra has a 10-year head start on its less privileged competitors.

So now, with a privatised Telstra free to threaten the government as it sees fit, that same government is trying to save face by tossing Telstra's competitors a AU$600
million bone and hoping they can make inroads where its own deregulation policy has failed.

But even assuming they do get all of the AU$600 million, can Optus and Telstra's other competitors do a better job than Telstra did(n't)? Not necessarily; after all,
Labor's election-time stumping has priced a national broadband infrastructure at AU$5 billion. Can Broadband Connect really help Telstra's competitors spread broadband throughout the bush on the cheap? Let's hope so -- because Telstra certainly isn't going to.

Could you wire the bush with AU$600 million? I'd love to hear how. Drop me a line at tips@zdnet.com.au.

As large as the US mainland but with a smaller population than Texas, Australia relies on ICT innovation to maintain its position as a first-world democracy and a role model for the developing Asia-Pacific region. Award-winning journalist David Braue has covered Australia’s IT and telecoms sectors since 1995 – and he’s as quick to draw le...
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